China's government is strengthening control over the country's three major policy banks to position them better to support new initiatives
to finance projects and corporate expansions abroad and to help stabilise growth at home.
The State Council, China's cabinet, on Sunday released approvals for reform plans at the banks: China Development Bank, the Export-Import Bank of China and Agricultural Development Bank of China. While lacking in detail, the plans seek to reverse an increasingly commercialised strategy pursued by at least two of these banks and reinforce their role as a financing tool of the Chinese government, according to government advisers and analysts.
The State Council stressed the banks' roles in supporting government policies and strategic goals. The plans call for the banks to improve their risk management and internal controls.
As China's economic growth slows and its vast commercial-banking sector is struggling with rising bad debts, the government is looking to the policy banks to reinforce support for key objectives. "These policy banks are being counted on to provide low-cost loans to finance things that often prove unattractive to commercial lenders, like infrastructure, farms, exports and overseas investments," said economist Zhu Chaoping at UOB Kay Hian Holdings, a Singapore-based brokerage.
Top of the agenda for China's leadership are ambitious plans to finance roads, railways, ports, telecommunications networks and other infrastructure to better connect the Chinese economy with the rest of Asia, Africa, the Middle East and Europe. The initiatives go under several rubrics used by President Xi Jinping: the Silk Road Economic Belt for overland Asia and the 21st Century Maritime Silk Road for the seaboard links. All are meant to evoke the trade routes that carried goods to and from China for centuries, and are seen by regional governments and policy analysts as illustrating China's ambition to challenge the US on international affairs.
As part of the initiative, China has established a $US40 billion ($A52.1bn) Silk Road fund and spearheaded the setting up of a new development bank, the Asian Infrastructure Investment Bank, which has attracted interest from more than 40 countries, including staunch U.S. allies and which is expected to begin operations with $US100bn in capital.
"A big question for us is how we finance the 'one belt, one road' plan and make it work," one of the government advisers said. "And that's where the policy banks come in."
Press offices at the three policy banks did not respond to requests for comment.
For most of the past two decades, China's major policy banks had one mission: to help carry out Beijing's economic orders and support Chinese companies when they expand overseas. In recent years, at least two of the three--China Development Bank and Export-Import Bank--have moved beyond these original roles to aggressively pursue commercially oriented deals, such as financing leveraged buyouts in foreign markets.
China Development Bank has stepped into some of the biggest private deals in Asia, lending money to e-commerce company Alibaba Group Holding, Hong Kong Exchanges & Clearing and Indonesia's PT Bumi Resources. Export-Import Bank, meanwhile, has sought to fund the construction of expensive condominium towers in Manhattan and financed a multi-billion-dollar casino resort in the Bahamas.
The State Council statement released on Sunday calls on China Development Bank to "play an active role" in stabilising China's growth. The bank has already taken steps to re-establish its status as the go-to bank for government priorities. Last year, with the blessing of the Chinese leadership, the bank established a new department headed by an official with the rank of vice minister to specialise in financing low-cost public housing and received a one-trillion yuan loan, about $US162bn, from the central bank for that purpose, according to people familiar with the matter.
Going forward, the development bank, with more than eight trillion yuan in assets, is expected to get involved in Beijing's efforts to solve its mounting local-government debt problems, according to some Chinese officials and analysts. China recently has launched a program to alleviate the debt-repayment burdens of local governments by allowing localities to sell new bonds to replace some of their existing debts--mostly short-term bank loans with relatively high interest rates. The bank is expected to be asked to purchase the new bonds at some point as a way to keep down the interest rates on those bonds, the officials and analysts said.
For the Export-Import Bank, which has nearly two trillion yuan in assets, the State Council plan requires it to focus on its main role of financing Chinese exports and implementing China's "going-out" strategy. To help the bank reinforce its policy-bank role, Beijing recently shook up its top management by appointing Hu Xiaolian, until earlier this year a vice governor of the central bank, as its new chairman.
With some 2.7 trillion yuan in assets, Agricultural Development Bank so far has largely stuck to its mission of financing Chinese agricultural companies and food producers. The State Council statement nonetheless called for the bank to better separate its for-profit business from its main business and to focus on the latter. The goal is to make it a "sustainable" policy bank, according to the statement.
SOURCE: DOW JONES NEWSWIRES
